Regulating Producers by Randomizing Consumers

67 Pages Posted: 28 Feb 2024 Last revised: 22 May 2024

See all articles by Michael Abramowicz

Michael Abramowicz

George Washington University Law School

Date Written: February 23, 2024

Abstract

Consumer law aims to empower consumers with accurate information and to protect them from misinformation. For complex goods and services, however, mandated disclosure laws and other consumer law tools have had only limited success in helping consumers project their satisfaction and costs. Market responses, such as ratings, have limitations that have prevented them from compensating adequately for consumer law’s shortcomings. This Article describes how regulators could improve measurements of quality and cost by borrowing a tool from drug law: randomization. In designated markets, consumers who accept an incentive to volunteer would be randomized among two or more choices, and the government would collect short- and long-term information about each consumer’s experience. For example, in the health insurance market, by providing discounts to consumers who select two or more possible insurers, the government could accomplish the goal of comparing insurers’ health outcomes, free from the current confounding concern that different health insurers serve different pools of insureds. Randomization similarly could help overcome informational problems and abusive conduct in highly regulated markets for health providers, educational institutions, and lawyers, as well as for more ordinary goods and services, such as automobile repair. The information generated through randomization not only could be of direct use to consumers, but also could serve as an input into additional regulation, allowing the government to make more informed decisions about mandating product features where data establishes that producers exploit systematic errors by consumers.

Keywords: consumer law, randomization

Suggested Citation

Abramowicz, Michael, Regulating Producers by Randomizing Consumers (February 23, 2024). GWU Legal Studies Research Paper No. 2024-32, GWU Law School Public Law Research Paper No. 2024-32, Available at SSRN: https://ssrn.com/abstract=4736874 or http://dx.doi.org/10.2139/ssrn.4736874

Michael Abramowicz (Contact Author)

George Washington University Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

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